No Single Test Delineates Conduct That Will Constitute A Waiver
Above: Mercedes-Benz U.S. International Plant, Tuscaloosa County, Alabama. Carol Highsmith, photographer. Library of Congress.
Remember the test for waiver that we learned in law school? “Voluntary relinquishment of a known right.” Well, that’s not the requirement for waiver of the right to arbitrate in California. Waiver was the chief issue in Lewis v. Fletcher Jones Motor Cars, Inc., No. G045603 (4th Dist. Div. 3 March 26, 2012) (Aronson, J.) (not for publication).
In Lewis v. Fletcher Jones Motor Cars, Inc., Plaintiff Lewis sued the car dealer after she returned her car upon the Lease’s expiration, and got billed nearly $19,000 for exceeding the Lease’s mileage allowance, missed payments, and late charges. Lewis did not avail herself of an arbitration provision in the Lease. Neither did Fletcher Jones, at least not immediately. The trial court found the Lease’s arbitration provision to be unconscionable and Fletcher Jones waived its right to arbitrate by unreasonably delaying and by litigating Lewis’s claims on the merits. Fletcher Jones appealed from an order denying its motion to compel arbitration
Citing Burton v. Cruise, 190 Cal.App.4th 939, 944 (2010), the Court of Appeal explains that the term “waiver” is really used “’”as a shorthand statement for the conclusion that a contractual right to arbitration has been lost.’” . . . . a party may be said to have “waived” its right to arbitrate by an untimely demand, even without intending to give up the remedy. In this context, waiver is more like a forfeiture arising from the nonperformance of a required act. . . . ‘”
California applies a six-factor test found in St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003). In the instant case, the trial court found waiver based on (1) unreasonable delay in demanding arbitration; (2) engaging in litigation on the merits and taking other steps inconsistent with the right to arbitrate; and (3) prejudicing Lewis through the delays and litigation. The Court of Appeal affirmed the trial court, making it unnecessary to determine whether the arbitration provision was unconscionable.
Here the delay in bringing a motion to compel was only five months; yet there are other cases with comparable delay where waiver has been found. The case was litigated through two demurrers and a motion to strike. While a demurrer does not necessarily waive a right to arbitrate, demurrers may justify a waiver finding. Lewis also fully briefed three motions to compel discovery responses. She incurred approximately $45,000 in attorney fees and nearly $1,000 in costs. While costs and legal expenses alone do not necessarily show prejudice, here, given that $19,000 was at stake, the fees and costs definitely played into the mix.
St. Agnes emphasizes “that no single test delineates the nature of the conduct that will constitute a waiver of arbitration.” St. Agnes, supra, 31 Cal.4th at 1195-1196. We can even suggest that, based on the totality of circumstances, some cases actually may become more amenable to arbitration with the passage of time, as issues that could be a problem in arbitration drop out, or as some critical new piece of information emerges. But as a general rule, the best policy is not to delay making a demand to arbitrate and following through with the demand if you really want to arbitrate – for with delay, litigation on the merits, and rising costs being incurred, the risk of waiver becomes very real indeed.
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